Published 2:59 pm, Tuesday, February 11, 2014

Rackspace shares tanked on Tuesday as investors reeled from the surprise news that CEO Lanham Napier is retiring, effective immediately.

Shares have plummeted about 18% so far, to around $33.

Rackspace's co-founder and it's original CEO, Graham Weston, is taking the CEO job again for now while the company conducts a search. Meanwhile Taylor Rhodes was promoted to president. He was formerly leading the sales and financial teams.

Napier joined Rackspace in 2006 and under him it grew from $1.5 million in revenue to $1.5 billion in 2013. He'll be sticking around to help as needed. Rackspace has agreed to pay him $140,000 for three months of consulting, from February though May, it said.

The company hasn't revealed other details of his final compensation package but by today's standards, he certainly wasn't overpaid. He earned a $400,000 salary in 2012, and, with stock, a total package of $2.5 million. That was about half the package paid to him in 2011 when he earned $4.2 million.

For now, he indicated he was going to work with startups but he also signed a one-year non-compete, so we'll see where he surfaces after that expires.

Napier announced the news on the heels of its fourth quarter results, which met analysts expectations but showed a scary softness in the area where Rackspace really needs to grow: cloud computing.

For the fourth quarter, Rackspace's net income dropped to $20.8 million and 14 cents per share, compared to $29.9 million and 21 cents per share for the year-ago quarter. That met analysts expectation of 14 cents a share.

Revenue was up 15.6 percent to $408.1 million, and that was a beat. Analysts were looking for $404.6 million.

For the 2013 year, net income was down to $86.7 million, or 61 cents a share, compared to $105.4 million or 75 cents a share in 2012. 2013 revenue was up to $1.53 billion from $1.3 billion.

Rackspace did grow its public cloud computing revenue, where it goes head-to-head with Amazon: $116.8 million in 2013, compared to $87.3 million in 2012.

But it was soft on guidance for 2014, saying it expected between $1.77 billion to $1.8 billion. That low end fell below analysts' estimate of $1.79 billion.

Rackspace's biggest problem is how it will fend off a growing number of tech giant companies competing for cloud computing customers. IBM has doubled down on its attack. Google and Microsoft are doing well. And companies like HP, Oracle, VMware are ramping up their clouds, too.